FINANCE

BOK keeps key rate at record low amid pandemic, growth estimate at 3% this year

By Yonhap
  • Published : Feb 25, 2021 - 09:46
  • Updated : Feb 25, 2021 - 14:12

This file photo, taken June 4, 2020, shows stacks of cargo containers at South Korea's largest seaport of Busan, 450 kilometers southeast of Seoul. (Yonhap)
South Korea's central bank on Thursday held its benchmark policy rate unchanged at a record low of 0.5 percent, as the third wave of the new coronavirus undermined the scope of sustaining an economic recovery.

As widely expected, the monetary policy board of the Bank of Korea (BOK) voted to leave the base rate steady in this year's second rate-setting meeting.

The Bank of Korea (BOK) also maintained its growth outlook for the year at 3 percent but hinted it may revise up the figure depending on virus development.

BOK Gov. Lee Ju-yeol told reporters that the central bank will maintain an easing of the monetary policy to support an economic recovery, citing high uncertainties over a growth track.

"It is not appropriate to talk about normalizing the monetary policy for now," Lee said.

Although the BOK raised its inflation outlook to 1.3 percent for this year, Lee said a rise in inflation would not lead to a shift in monetary policy.  Globally, commodity prices have significantly risen due to an easing of monetary policies by central banks.

"It's a fact that there is an upward inflationary pressure, but we need to watch whether it will have a continuity," Lee said, adding that Thursday's rate-freeze decision was unanimous.

In a statement, the BOK said South Korea's economy has continued to recover at a modest pace, supported by exports and facility investment.

The BOK noted the fragility of the recovery because of uncertainties over the pandemic and weaker job markets.

"The Korean economy has continued to recover modestly. Although private consumption has remained weak as social distancing has been prolonged, exports have sustained their buoyancy led by the IT sector, and facility investment has continued to recover," the BOK said.

"However, uncertainties surrounding the pace of recovery are judged to remain elevated," it said. Last month, the BOK froze the key rate as economic uncertainty heightened amid a flare-up in new coronavirus cases.

To bolster the pandemic-hit economy, the BOK slashed the key rate to the all-time low of 0.5 percent in May last year after delivering an emergency rate cut of half a percentage point.

Despite signs of a recovery in exports, weaker consumption has weighed on employment and increased pressure on policymakers.

South Korea's economy contracted 1 percent last year, marking the worst performance in over two decades, but it appears to have returned to a growth track on the back of a mild recovery in exports.

Exports rose 16.7 percent on-year in the first 20 days of February on strong shipments of chips and autos.

The number of employed people reached 25.8 million last month, 982,000 fewer than a year earlier, according to the data compiled by Statistics Korea. It marked the sharpest on-year fall since December 1998, when the country lost 1.28 million jobs in the wake of the Asian financial crisis.

The country has reported job losses every month since March last year, when the nation lost about 195,000 jobs, the first on-year job loss since 2009. For all of 2020, the nation shed the largest number of jobs since 1998.

Meanwhile, the BOK kept the nation's 2021 growth outlook at 3 percent in its latest update. The nation's economy is expected to grow 2.5 percent in 2022, the BOK said.

The BOK also expected inflation to grow 1.3 percent this year, up from its previous forecast of 1 percent.

The BOK raised its growth outlook of exports for this year to 7.1 percent from 5.3 percent. Facility investment is expected to grow 5.3 percent this year, up from a previous forecast of 4.3 percent.

Private consumption is expected to grow 2 percent this year, down from a previous forecast of 3.1 percent. (Yonhap)